With a price-to-earnings (or "P/E") ratio of 9.4x Cecep Guozhen Environmental Protection Technology Co.,ltd. (SZSE:300388) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 25x and even P/E's higher than 44x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Cecep Guozhen Environmental Protection Technologyltd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
What Are Growth Metrics Telling Us About The Low P/E?
Cecep Guozhen Environmental Protection Technologyltd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
If we review the last year of earnings growth, the company posted a worthy increase of 5.7%. The solid recent performance means it was also able to grow EPS by 13% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 4.5% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Cecep Guozhen Environmental Protection Technologyltd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Cecep Guozhen Environmental Protection Technologyltd's P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Cecep Guozhen Environmental Protection Technologyltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for Cecep Guozhen Environmental Protection Technologyltd (1 is a bit concerning!) that we have uncovered.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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